GST Under RCM on Renting of Motor Vehicle

The problem was arising for the small taxpayers who supposed to deposit the GST amount immediately on account of supply of service and the payment for the same has been received by them after 6 months or even more in some cases. It becomes very difficult for the small operators to pay the tax amount upfront on the services provided.

Majority of service providers in this category are small and scattered service providers.

During the Pre-GST regime the service tax was payable on the rent-a-cab services under RCM by the corporate entities where the said services provided by non-corporate entities. The said mechanism was adopted for two fold purposes, the small service providers were required to make simple tax compliance with improved liquidity on account of delayed payments by service recipients. On the other hand, it has created positive impact for revenue on tax collection, compliance and administration.

No such mechanism has been provided in the GST regime. Accordingly, The RCM will reduce the GST compliance and will improve the liquidity for them. At the same time, the Government will get more revenue with lesser tax collection cost.

In view of the above, GST council in its 37^th meeting dated 20.09.2019 which has been held in Goa, recommended RCM to suppliers paying GST @ 5% on renting of vehicles, with ITC only of input services in the same line of business, when providing services to corporate entities may be considered. 

Analysis : In GST regime, the tax rate for renting of vehicles is 5% with ITC of input services in the same line of business or 12% with full ITC.

In Service Tax (ST) regime, the effective tax rate was 6% with ITC of input services in the same line of business or 15% with full ITC. Further, 100% RCM was applicable on renting of vehicles on abated value to any person who is not engaged in the similar line of business. However, in GST regime RCM option for the service of renting a vehicle had been discontinued.

In this case, It can be allow RCM facility to operators (not body corporates) paying GST at 5% with ITC of input services in the same line of business only when the services are provided to corporate entities.

This would provide relief to the suppliers which are small businesses and are transport service providers. 

Going further, To implement the recommendation of council, The Government has issued the NN. 22/2019 dated 30.09.2019 amending NN. 13/2017 dated 28.06.2017 (Parent notification of reverse charge) and the following entry has been inserted vide the said notification w.e.f, 01^st October, 2019:

Serial no	Category of Supply of Services	Supplier of service	Recipient of Service
15	Services provided by way of renting of a motor vehicle provided to a body corporate.	Any person other than a body corporate, paying central tax at the rate of 2.5% on renting of motor vehicles with input tax credit only of input service in the same line of business.	Any body corporate located in the taxable territory.

Now, this notification has created a lot of confusion and the same has been resolved by Circular no. 354/189/2019-TRU dated 31.12 2019 which clarified the interpretation of the said notification and also substituted the existing entries with following entries vide amended NN 29/2019 dated 31.12.2019 :-

Circular no. 354/189/2019-TRU dated 31.12 2019

Post issuance of this notification references have been received stating that when a service is covered by RCM, GST would be paid by the service recipient and not by the supplier. Therefore, the wording of the notification that “any person other than a body corporate, paying central tax at the rate of 2.5%” is not free from doubt and needs amendment/ clarification from the perspective of drafting.

The matter has been examined. When any service is placed under RCM, the supplier shall not charge any tax from the service recipient as this is the settled procedure in law under RCM. There are only two rates applicable on the service of renting of vehicles, 5% with limited ITC and 12% with full ITC.

The only interpretation of the notification entry in question which is not absurd would be that –

(i) where the supplier of the service charges GST @ 12% from the service recipient, the service recipient shall not be liable to pay GST under RCM; and, (ii) where the supplier of the service doesn’t charge GST @ 12% from the service recipient, the service recipient shall be liable to pay GST under RCM.

Though a supplier providing the service to a body corporate under RCM may still be paying GST @ 5% on the services supplied to other non body corporate clients,

To bring in greater clarity, serial No. 15 of the notification No. 13/2017-CT (R) dated 28.06.19 has been amended vide notification No. 29/2019-CT (R) dated 31.12.19.

NN 29/2019 dated 31.12.2019

Serial no	Category of Supply of Services	Supplier of service	Recipient of Service
15	Services provided by way of renting of a motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient provided to a body corporate	Any person, other than a body corporate who supplies the service to a body corporate and  does not issue an invoice charging central tax at the rate of 6 per cent to the service recipient	Any body corporate located in the taxable territory

Notification has been amended and clarified that RCM shall be applicable on the service by way of renting of any “motor vehicle designed to carry passengers” where the “cost of fuel is included in the consideration” charged from the service recipient only if the supplier fulfils all the following conditions:–

(a) is other than a body-corporate;

(b) does not issue an invoice charging GST @12% (6% CGST + 6% SGST) from the service recipient; and

(c) supplies the service to a body corporate.

As per circular : It may be noted that the present amendment of the notification is merely clarificatory in nature and therefore for the period 01.10.2019 to 30.12.2019 also, clarification given above shall apply, as any other interpretation shall render the RCM notification for the said service unworkable for that period which is not permissible in law.

Even after the said Circular and Notification dated 31.12.2019, there are some taxpayers which have opinion that Notification has mentioned “Supplier is the one who is not charging GST @12%”. According to those taxpayers, supplier who are charging GST @ 5%, shall still charge GST in their invoice and accordingly GST shall also be deposited by recipient under RCM.

It is going to result into double taxation, Recipient has paid the GST amount to the supplier of service and the same has been deposited by him to the Government under reverse charge mechanism.

In this case, GST paid under reverse charge basis would become extra revenue cost on the service recipient.

My View:

As per recommendation of GST council, the service has been bring under the mechanism of reverse charge for the purpose of relief to the suppliers which are small businesses and are transport service provider as we have discussed already and not to create an additional burden on the service recipient.

It is settled law which clears that there are only two rates in GST for renting of motor vehicle i.e., 5% with ITC in same line of business and 12% with full ITC.

Meaning thereby, if supplier do not charge GST @ 12% in the invoice, it means he needs to opt it for GST rate @5% and therefore, when he opts for this rate , then service automatically shifts into reverse charge mechanism.

Accordingly, if assesse opts for GST @ 5%, then the said service is covered under reverse charge mechanism.

Advice:

In this case, If the cab operator charges 5% GST in its invoice, then the taxable person may not reimburse the same and advise him not to charge GST in the bills in future  as company will be paying GST under RCM provisions.

Different opinions are welcome, Thank you so much for reading this article.

Snapshots from the above said discussion:

Supplier & Recipient Specific

• Supplier is other than a body-corporate;
• Supplier can be a unregistered person also.
• Supplier does not issue an invoice charging GST @12% (6% CGST + 6% SGST) from the service recipient.
  • Author’s view: Supplier should not charge any amount on account of GST liability either @ 12% or 5% on service of renting of motor vehicle.
• Supplier may still be paying GST @ 5%/ on the services supplied to other non-body corporate clients.
• Service recipient should be an body corporate.

Service specific

• Service covers only those motor vehicles which meant to carry passengers. Renting of Trucks, cranes, JCB machines was not to be covered by provisions of RCM .Therefore , now only those motor vehicles which are designed to carry passengers for renting out will attract tax on RCM basis 
• Renting amount should be inclusive of cost of fuel. In case, the fuel is not covered in consideration it will not be covered Reverse Charge Mechanism.
• In case the cab operator and service recipient are located  in the same State / U.T., the service recipient will pay 2.5% CGST + 2.5% SGST under HSN Code 9964 without availing ITC of goods or services used in  rent-a-cab service.  In case the cab operator and service recipient are located in different States / U.T., IGST @5% will be paid by the recipient body corporate.
• Leasing of motor vehicles (HSN Code 9973) from a non-body corporate to corporate entity is not covered by RCM provisions.

Input Specific

 Input tax credit would not be available to the service recipient.  As per section 17(5) of CGST Act, 2017, renting or hiring of  motor vehicle having approved seating capacity upto 13 persons (including driver) is not allowed as input tax credit. Also, “rent-a-cab” service specifically blocked under section 17(5) of CGST Act,2017.